Binary options are simple trading instruments that are designed to offer an attractive alternative for the directional trader with a small account. As Abe Cofnas explains in the second edition of Trading Binary Options: Strategies and Tactics (Bloomberg/ Wiley, 2016), the trader makes a straightforward bet: that the settled price of an underlying market will be at, above, or below a target strike barrier by a defined future time. If he’s right, he gets $100; if he’s wrong, he gets nothing. At least that’s the way it works on Nadex (North American Derivatives Exchange).
Traders who have shied away from options because they seem overly complicated may be relieved to learn that understanding the Greeks is not essential in the world of binary options. Yes, market makers use them to price the binaries and Cofnas even introduces the reader to volatility smiles, but the trader’s major decisions are whether to buy or sell binary options, at what strike price, and for what duration. How much does he think the market will move in a given length of time and in what direction?
Of course, getting the direction, magnitude, and timing of a short-term trade (weekly, daily, and a selection of intraday expiries) right is a daunting task. Cofnas therefore devotes four chapters to tools the binary options trader can use to improve his skills: sentiment analysis, tracking fundamental forces that impact markets, technical analysis, and volatility tools.

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